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Monarch Airlines, its stakeholders and creditors

19 Oct 2017

4 minute read

Following the recent collapse of Monarch Airlines, unsurprisingly the battle lines are starting to be drawn as various stakeholders are looking to gain advantage from the situation. This blog focuses on a few of Monarch’s key stakeholders and their potential gains or losses from the company’s administration.

As is often the case following a high profile insolvency case, the company’s administrators – in this case KPMG - have been heavily profiled in the media. As soon as they were appointed, there was speculation over KPMG’s validity as administrators because of the Big 4 firm’s previous involvement in searching for a buyer for Monarch – a fact which many believed to be a conflict of interest.

On a strict interpretation of the ethical guide, even the potential of a conflict of interest could be considered as barring an appointment. However, in all likelihood, all of the major insolvency firms have been involved in one way or another in a case such as this: advising the directors; advising the company; advising ATOL; advising any one of a number of other stakeholders. KPMG might well have a prior connection but they can be sure that they will be watched very closely with regard to their actions and omissions, and that the review process is far more likely to ensure they do not allow any prior connections to influence their decisions going forward, rather than allowing a melee to develop over who should actually do the job.

Further questions were raised regarding whether or not KPMG had the right to sell Monarch’s airline slots. They appear to have taken legal advice on the matter and believe they should be able to sell the slots for a total sum believed to be nearing £60 million. However the regulators and airport authorities do not seem to be so sure. This will not be a quick fix and instead, a legal battle could rumble on for years. These slots are probably an off balance sheet asset but such slots for routes and gate access at airports do cost money. If you think about different gate numbers, there is a correlation between cost and how far passengers have to walk, with some airlines commanding control of whole terminals, BA at Terminal 5 Heathrow and Delta at a number of locations in the US being examples of this. Recent reports would suggest there is still some debate over whether the routes and gates are tradeable assets that can be sold by the administrator to benefit the company’s creditors or whether those routes revert to the authorities/airport owners. In such legal agreements of this nature there is more than likely a clause that states; in the case of an insolvency, the gate and route licenses revert back to the regulators and airport owner; the reason being that such a clause protects the public from the route being sold to a small airline with less regard for service and safety. If the contracts did include insolvency clauses, it is likely that the authorities would also argue that just because they benefit from a bit of windfall were they able to resell the licenses, it doesn’t mean that they should share the profits with Monarch’s creditors. Instead, the likely argument is that had Monarch operated in a fit and proper manner, the creditors would have benefited from the licenses and the profitable trading. If £60 million is at stake then watch this space!

Another, rather obvious, stakeholder affected by the airline’s situation, was those many Monarch customers stranded and delayed across the world. Recent reports have suggested that 68,000 of these customers could miss out on compensation as they are defined as ‘unsecured creditors’. For many of the Monarch customers, their situation comes down to whether their booking is protected by the UK’s Air Travel Organisers’ License (ATOL) scheme – a topic I hope to go in to further detail upon in an upcoming blog. Following the treatment of Monarch’s customers, the Government are looking into the reform of the Insolvency rules in similar situation to make sure passengers will not be stranded if a similar situation were to arise in the future.

The final stakeholder that I wish to touch upon is the staff of Monarch, who have been reportedly swamping the offices of JWK solicitors, the firm which represented BHS staff in their bid for compensation after the retailer went bust. Monarch staff pensions have also been discussed in Parliament following reports that Monarch’s owners Greybull Capital may take a profit, whilst former employees take away an empty pension pot. For more information on staff compensation in the case of insolvency, take a look at our article on the BHS case here.

This is just a quick overview of some of those stakeholders affected by the collapse of Monarch Airlines. We will look to focus further on a couple of the stakeholders further in future blogs, however, if you have any questions regarding the initial topics discussed here then please do get in touch via email or call 01865 292 200.